Great article! Haven’t read this interview, so this insight was rather new. Really odd to see these frequent changes in their CFO position, hopefully they’re able to find someone soon that works with the duo of Daniel and Johan harmoniously and sustainably…
In my opinion, it is a huge mistake that the IASB and the FASB have recently decided again against goodwill amortization and continue to stick to the impairment only approach. I had actually hoped that there could be a paradigm shift here. Interestingly, in Japan and also according to the German local gaap (HGB), goodwill is amortized on a straight-line basis.
TBH, I am ok with no amortisation of goodwill because it leaves a cleaner picture of the companies capital allocation and real margins, but yeah, a common harmonisation between accounting rules would be great ;)
To my knowledge in most countries in Europe those amortisations on intangibles from acquired companies are anyway not tax deductible. Hence no impact on tax independent of the treatment. Could you clarify on that, as that would be a very interesting angle if they would be? Generally I would also say that most professional investors look at Ebita instead of reported Ebit. Thanks for sharing your analysis.
I had the same understanding as you, but "checked" with ChatGPT before writing it. After your message, I checked further to see if what I was just stating was not true.
What you write is absolutely true and the norm. It seems though that Sweden permits tax deductions on intangibles assets amortisations, and also in goodwill depending on whether that was an asset or share deal.
I have to admit it is not that clear. However, and this is just speculating, it seems it would make sense that it had a benefit to input most of your acquired intangibles acquired as intangible rather than goodwill. If not, why would CSU or Lifco push "so hard" to do it if there is no difference at all?
You are confusing group level-accounting and the tax that the parent company are paying. In acquisitions, goodwill and intangibles are assets on the GROUP LEVEL (which is not a taxable), but it does affect the "accounting tax" on the consolidated statements, which you are refering to in the post. However, for the parent company (holding company), the acquisition is a financial asset and usually pay tax on the profits which its subsidiary are pruducing. Holding companies usually have some form of transfer-pricing agreement to optimize its tax structure.
Companies can also take advantagde of other tax-treatments, for example, fully write off the cost of an asset for tax reasons but still depreciate the cost in over the lifetime in the financial statements.
If the company are not being transparent with this, you can get some clues in the Notes "Effective tax rate".
This post is really well written but lack the practical treatment of the actual tax paid and mix Group-level accounting with the holding company.
Great article! Haven’t read this interview, so this insight was rather new. Really odd to see these frequent changes in their CFO position, hopefully they’re able to find someone soon that works with the duo of Daniel and Johan harmoniously and sustainably…
Thank you for sharing!
In my opinion, it is a huge mistake that the IASB and the FASB have recently decided again against goodwill amortization and continue to stick to the impairment only approach. I had actually hoped that there could be a paradigm shift here. Interestingly, in Japan and also according to the German local gaap (HGB), goodwill is amortized on a straight-line basis.
TBH, I am ok with no amortisation of goodwill because it leaves a cleaner picture of the companies capital allocation and real margins, but yeah, a common harmonisation between accounting rules would be great ;)
Edel with the Sunday Special ... thank you! TEQ is a very interesting case ... .
To my knowledge in most countries in Europe those amortisations on intangibles from acquired companies are anyway not tax deductible. Hence no impact on tax independent of the treatment. Could you clarify on that, as that would be a very interesting angle if they would be? Generally I would also say that most professional investors look at Ebita instead of reported Ebit. Thanks for sharing your analysis.
Hi Jonas.
I had the same understanding as you, but "checked" with ChatGPT before writing it. After your message, I checked further to see if what I was just stating was not true.
What you write is absolutely true and the norm. It seems though that Sweden permits tax deductions on intangibles assets amortisations, and also in goodwill depending on whether that was an asset or share deal.
I have to admit it is not that clear. However, and this is just speculating, it seems it would make sense that it had a benefit to input most of your acquired intangibles acquired as intangible rather than goodwill. If not, why would CSU or Lifco push "so hard" to do it if there is no difference at all?
Some references:
http://www.taxamortisation.com/tax-amortisation-benefit.html
https://www.wallstreetprep.com/knowledge/goodwill-amortization-difference-gaap-tax-accounting/
https://www.thebalancemoney.com/amortizing-intangible-assets-under-irs-section-197-398307
Thanks for clarifying. Good aspect to bring up to discuss with the CFOs to better understand the economic effects of either treatment!
You are confusing group level-accounting and the tax that the parent company are paying. In acquisitions, goodwill and intangibles are assets on the GROUP LEVEL (which is not a taxable), but it does affect the "accounting tax" on the consolidated statements, which you are refering to in the post. However, for the parent company (holding company), the acquisition is a financial asset and usually pay tax on the profits which its subsidiary are pruducing. Holding companies usually have some form of transfer-pricing agreement to optimize its tax structure.
Companies can also take advantagde of other tax-treatments, for example, fully write off the cost of an asset for tax reasons but still depreciate the cost in over the lifetime in the financial statements.
If the company are not being transparent with this, you can get some clues in the Notes "Effective tax rate".
This post is really well written but lack the practical treatment of the actual tax paid and mix Group-level accounting with the holding company.